Archive | June, 2008

Problems in conference-land?

24 Jun

Let me start by first saying that I generally like conferences. They are often a great way to connect with colleagues and service providers to the venture business that I typically only interface with sporadically during the year — and even then, often via email, conference call or through some other quasi-technologically enabled medium. That said, conferences can be a time sink. I also find the “content” at these affairs to be on the wane, particularly those events targeted at venture industry professionals and the businesses that service them. Put bluntly, the modern venture industry conference is hewing dangerously close to becoming an irrelevant echo chamber. There is simply too much filler, too many of the same faces every year saying versions of the same thing at every conference, too much marginalia, too many self-congratulatory tributes, too many resume recitations and thinly veiled fundraising pitches. Not enough self-reflection, not enough contrarian thinking and challenges of conventional approaches, not enough panelists challenging others about basic market assumptions and predictions. Not enough mea culpas.

I realize conferences are not intended as exorcisms of past demons, or a recitation of misdeeds, or of great deals missed, or of lousy investments green-lit. Indeed, who would want to attend such a thing, much less to do so at $3,995 a pop? But a true “trade” conference, as opposed to an emerging company forum like DEMO or TechCrunch50, are supposed to be opportunities to convene an industry to network, re-connect, combine on opportunities, address industry challenges, and sometimes commiserate on the state of the profession. If a trade conference strays too far from that mission, it ceases to become an assemblage of the industry’s top professionals to meet, discuss and network and risks becoming just another ‘pay-to-play’ trade show . 

Trade conferences have some work to do to re-invigorate the medium and re-establish its relevance in an industry clearly going through some re-calibration and re-inspection. I am confident the main conference exhibitors can meet the challenge, but doing so relies heavily on the assumption that they realize there is a problem.

Notes from a Conference

16 Jun

Last week the 19th annual IBF Venture Capital conference convened in San Francisco. Not surprisingly, some of the bullishness evident at recent conferences was replaced by a more cautious, measured perspective from the attendees and panelists. While I would say there are few “new” ideas to emanate from these affairs, having esteemed colleagues articulate in front of 200 people what you have been noodling with in your head for the past few months helps underscore one’s intuitions about what is occurring in the venture business and how the industry needs to respond.

As is my custom, I like to scribble notes from panel discussions and keynote addresses when I come upon a pithy observation or insight. Rather than prefacing these remarks with context, I am simply presenting them here as uttered, without elaboration. Many speak for themselves and, surprisingly, retain more power when they stand alone, without comment or context.

From an “Investing in a Downturn” panel:

– “Money is a proxy for time, so make damn sure your company has enough cash to make it through the downturn. If a dollar does not absolutely need to be spent, don’t spend it right now. Spend for growth, nothing else”

– “There is always a bull market somewhere. The US market is tough, but the dollar is very weak and international opportunities abound. Have your portfolio companies look abroad for opportunities to sell their products and services.”

– “We are definitely entering a period of longer hold times (for venture investors.) Manage your fund and fundraising accordingly”

– “There is a lot of foreign capital in China, Korea, the UAE and elsewhere looking for a home. They will begin competing with venture investors for venture deals. They already are.”

– “Every portfolio company CEO and every VC needs to take a long-term view now. We must re-emphasize capital efficiencies”

– [For VCs] “Try to work with syndicate partners that will be around to support the portfolio company through the downturn. Work with firms that have a reputation for hanging in there in the tough times. Reputation is key.”

– “Make sure the board and the investors are properly communicating with one another”

– “Make sure the board’s investors are ‘walking the plant floor’ – i.e. they really know what’s going on at the company and who the people are at the company, not just grabbing a sandwich and Coke at the board meetings and not even getting to know the name of the receptionist.”

From an “Early Stage Investing” Panel:

– “This is great time for early stage investors because a lot of what we do has little to do with exogenous factors. Because such factors have little bearing on getting a company to build its first product, the downturn often means less froth, less distraction, less competition for talent and resources, and more time and attention to focus on building a young company”

– “In terms of deal flow, the downturn means fewer entrepreneurs, but better entrepreneurs. The ‘born’ entrepreneurs are still going to launch companies and find good partners; the entrepreneurs that are not as talented or driven will likely stay in their corporate jobs fretting over getting laid off, not trying to launch start-ups.”

– “We are seeing a renewed focus on disruptive business models as opposed to disruptive technologies. An example of a disruptive business model is one where a company is leveraging a spin on a large market that an incumbent can’t accomplish itself without cannibalizing its own business.”

– “Spending cash for eyeballs is totally dead as a business strategy right now”

– “Capital efficiency is tossed around liberally with regards to early stage investing, but it applies to all stages of venture capital, not only early stage.  Great consumer internet companies, in particular, have launched with very little money and developed into powerful businesses. Companies that require a lot of money at the outset may still become great companies, but rarely make good venture investments”

And finally, most sobering of all…

– “VCs need to embrace the current market, not complain about it. They must adjust their investment models to the market. They can’t have it both ways: They can’t complain to their LPs that the market is unattractive and not invest and still expect to collect management fees on capital not being managed.”

Entrepreneur ‘openness’ and venture success

5 Jun

Fellow venture blogger Fred Wilson and his colleagues at Union Square Ventures opined in recent posts about a correlation between an entrepreneur’s “openness” and that particular venture’s eventual success or failure. The discussion and reader comments that ensued spurred some dialogue internally here as well. Some months ago I posted about my (and virtually every other VC’s) discomfort with signing NDAs and my sometime annoyance with the entrepreneurs that insist upon them. My reasons were pretty well itemized in the relevant post, so there’s no purpose in rehashing them here.

While I have yet to unearth any solid evidence that supports the point, anecdotally I am fairly convinced that ‘openness’, in almost all its forms, has a direct and positive impact on a start-up’s long-term success. The openness I refer to is most obviously witnessed in the manner in which the founding team deals with investors and, to a lesser extent, with strategic partners and potential customers. But openness connotes quite a bit more than that. Openness is quite frankly a state of mind, an attitude, and a modus operandi for many highly successful entrepreneurs. Some of the most successful entrepreneurs I have come across in my career were irrepressible in their enthusiasm for what they were doing. As such, you sometimes could not shut them up about their companies and what it was they were seeking to do. Their excitement was infectious. Often times, that infectiousness is what drove some investors to set aside minor flaws or ambiguities in the business plan and move forward with the investment. This occurred often because the investors felt so drawn to the entrepreneur’s vision that the belief was quickly formed that the knits and knats of things would ultimately get sorted out. Yes, the devil is in the details — the thinking sometime goes – but without a compelling vision and a charismatic entrepreneur able to articulate that vision, getting caught up in the details is somewhat academic.

But there is something beyond simply being chatty with investors that has bearing upon a venture’s eventual success. In recent years it has become abundantly (and, for many investors who suffered through the 2001-03 tech bust, painfully) clear that ideas, in isolation, have little value. Execution and strategy is what is most important. The old “where the rubber hits the road” cliche comes to mind here. Secondly, ideas are typically dynamic. Like a block of wood being whittled into a fine instrument, the idea takes shape over time and with constant refinements made by outside forces. What make up those outside forces are the innumerable conversations an entrepreneur will have with venture investors, partners, colleagues, industry experts and others about his or her idea. This process of learning and refining is critical, we have found. Few successful companies launched with the original idea as its core business proposition. More often than not, the business that ultimately launched was quite different from the original concept pitched by the entrepreneurial team those many months before. In some cases, so many refinements were made due to the feedback and learning process inherent in all those conversations, that the eventual business was almost unrecognizable from the initial idea pitched to the early investors.

Some may regard these wholesale changes to a business concept as a bit of a failure, or as “mission creep.” In fact, I submit that these refinements to a business concept, when done in a methodical, rationale way, is what is healthy and, ultimately, what is rewarding. Moreover, I am nowadays more concerned when I see very little pre-launch modifications to a business because it indicates that there has not been sufficient data gathering and ongoing conversations up until this point with customers, partners and others that will ultimately determine the fate of the business.

Like anything else, there are exceptions to adopting a culture of openness. Clearly, one-on-one meetings with direct competitors about the core concept of the eventual business is typically ill-advised as would be speaking with the press or others when there are no clear rules on what is confidential and what is not. Setting those instances aside, my view is that the benefits of being open about your business and seeking input from others far outweigh the potential costs and risks of doing so. Being secretive has its place, but very few great companies were launched without a lot of input from outsiders and a LOT of discussions with customers and partners. Cutting yourself off by imposing restrictions on what is discussed or demanding NDAs from people who are genuinely interested in helping is a good way to cripple a promising company.

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